DATE

Warren Buffett Home Capital Group
Steve Saretsky -

Warren Buffett’s Berkshire Hathaway Makes Big Investment Into Troubled Home Capital Group As reported earlier today from our friends over at Better Dwelling, Warren Buffett made a lucrative deal to purchase nearly 39% of Home Capital Group shares. This would make Buffett’s Berkshire Hathaway the largest shareholder of the firm. The deal involves a total investment of nearly $400 million with Home Capital Group selling the first batch of shares at $9.55, which is an incredible 56% discount when compared to yesterday’s closing share price. A sweet deal for the oracle of Omaha. A second batch of shares will be sold at $10.50 assuming shareholders approve the deal in September. Berkshire will also replace the emergency C$2 billion loan previously announced, with slightly better terms. The interest rate on the outstanding balance will be lowered from 10% to 9.5% until completion of the initial investment, when it then gets reduced to 9%. What to make of the deal? Buffett rarely makes bad deals, and it appears he has hedged much of his downside with the $2 billion dollar loan being secured by $4 billion in mortgages. Even if many of the mortgages are fraudulent at Home Capital, Buffett has essentially

Steve Saretsky -

Residential Mortgage Loans Continue To Spur Home Prices Canadian banks continue to funnel money into the historic real estate boom. In the first quarter of 2017, Canadian bank loans to the real estate and construction sector hit a record at C$43.6 billion. This of course is ensuring real estate prices stay elevated. As economist Steve Keen has noted, there is a direct relationship between the increase in mortgages and home prices. “The monetary demand for housing is overwhelmingly sourced from new mortgages. Divide the flow of new mortgages per year by the price level, and you have the physical flow of demand for houses per year. There is thus a relationship between the flow of new mortgages and the price level.” To no surprise, Mortgage payments for new loans in Vancouver are up 4.5% year over year. Coincidentally prices continue to rise,  Vancouver condo prices are increasing by over 2% per month with little signs of slowing. This dangerous concoction of rising home prices and household debt may finally be reaching a boiling point. It’s estimated household debt to disposable income could reach a mind blowing 180% by 2018 if the Bank of Canada leaves rates untouched. This sparked a surprisingly hawkish response

Steve Saretsky -

Early June Stats Highlight Potential Trends In the Vancouver Real Estate Market As always, this is the mid month REBGV real estate stats. This should give us a rough idea of how the final June numbers shape up. New listings have been trending up in recent months, which is partly seasonal. Sales have rebounded nicely after a substantial plunge near the end of 2016. Here’s how it looks midway through June, 2017. REBGV Detached REBGV detached sales were down 10% compared to the first couple weeks of June, 2016. Through the first 15 days there have been 685 sales, which is 3% below the 10 year average for this time period. Meanwhile, new listings have surged. With 1440 new listings so far, that’s 14% above the 10 year average and record for the past 10 years. REBGV Townhouse Townhouse sales are performing well in early June. There were 302 Sales through the first 15 days of June, which was 15% above the 10 year average, and a slight jump year over year. New listings are right on par with last year, but still below normal levels. New listings were 16% below the 10 year average. REBGV Condo The condo market

Steve Saretsky -

Mortgage Payments Rising, Canadians Tapping Into Equity As Debt Grows The average mortgage payment for new loans in Vancouver rose by 4.5% year over year in the fourth quarter of 2016 to $1936 per month. Canada Mortgage and Housing Corp. says the fact that the average scheduled monthly payment is growing faster than inflation is concerning because it suggests that homeowners could struggle to make their payments going forward. Homeowners are getting creative to keep up with record debt levels, now 167% of disposable income. Homes are being converted into ATM Machines. “Homeowners with significant unsecured debt are currently able to refinance this debt through a second mortgage or home equity line of credit (HELOC)” claims personal bankruptcy firm Hoyes Michalos. Naturally this is keeping delinquency rates incredibly low. The number of people filing for either a consumer proposal or bankruptcy that owned a home fell to just 7% at the end of May 2017. A massive drop from the all-time high of 35% in February 2011. Of course, this scheme of turning shelter into an endless ATM is a result of surging home prices. Vancouver home prices are up over 40% the past two years, while Vancouver condo prices are still increasing by

Steve Saretsky -

Why Canadian House Prices Have Surged Since 2007 Canadians love to argue over house prices. The debate rages on over what actually caused prices to take off over the last decade. An impressive boom that has seen cities like Vancouver and Toronto explode by more than 50% in recent years. Trying to put the pieces together can seem like an endless task. So it’s simpler to dumb it down to “supply and demand”. However, if we pull back the rug, we find something more. Why have so many countries experienced unprecedented growth in house prices? The simple answer is debt. You’ll notice that these countries all dodged the Great Financial Crisis in 2008. While many countries experienced significant housing downturns, countries like Canada were able to borrow their way out. The Bank of Canada lowered interest rates to the floor and encouraged Canadians to borrow more, helping to compensate for any slack in the economy. Household debt levels soared. Canada became an attractive investment for foreign capital looking for a safe return. A stable country with booming oil prices. Investors looking for yield piled into Canadian Mortgage Backed Securities. These securities are a key funding source for banks to create

Steve Saretsky -

Vancouver Condo Prices Surging to New Highs In 2017 It looks like another leg up for the Vancouver condo market. Last week I mentioned condo sales were 22% above the 10 year average in May. Couple this with the fact inventory is down 18% year over year and it’s a recipe for disaster. First time buyers are rushing into the market, and in an attempt to keep up with prices are having to get creative with financing, including help from Mom and Dad.  Free money from the BC Government has only made matters worse, the program has now approved an additional 327 first timers in Metro Vancouver. It appears official, Vancouver condos have lost all price discovery. Buyers are paying any price imaginable in order to secure a piece of the pie. Previous sale comparisons seem virtually irrelevant. Multiple offers are now expected on any unit below $1 million. A competitive frenzy that makes last year look tame, is pushing prices to all time highs. Vancouver condo prices are currently increasing at a rate of 2.2% per month since January, 2017. Well ahead of the 12 month rolling average of 1% per month. It appears onwards and upwards… For now.

Steve Saretsky -

Home Equity Lines of Credit Grow Nearly 40% Since 2011 The Bank of Canada released an update on their Financial system review earlier today. The message was much of the same from Governor Stephen Poloz “Price increases in Vancouver and Toronto have an element of speculation to them. The longer that goes, the bigger it gets, the more you start to be concerned that not necessarily a global recession, but just about anything could be responsible for causing a correction in housing.” The report highlights four key vulnerabilities to the Canadian financial system. Most notably the first two were directly tied to the housing market. Elevated Levels of Canadian Household Indebtedness Households are taking on more debt as house prices continue to rise. Mortgage credit has been rising faster than disposable income. Canadians are aggressively tapping into home equity lines of credit. Using their homes as an ATM, cash is being siphoned out in dramatic fashion. The number of HELOC’s have grown nearly 40% since 2011, with outstanding HELOC balances reaching $211 billion in 2016. Imbalances in the Canadian Housing Market House price growth reached 20 per cent nationally on a year-over-year basis in April. The majority of that growth coming

Steve Saretsky -

Total Dollar Volume Spent on Vancouver Luxury Homes Falls Capital flows pouring out of China have been well documented. It’s been estimated over 1.2 trillion dollars has flowed out of China since August 2015. Meanwhile, National Bank has estimated 12 billion dollars was invested from China directly into Vancouver real estate back in 2015. However, recent tightening of capital outflows shows foreign investment on real estate is slowing. In a recent report from Petra Blazkova, Senior Director of Asia Pacific Analytics at RCA, says China’s outbound real estate investments dropped by 19% year-on-year, to $5.8 billion, in the first quarter of 2017. The slowdown appears to be showing up in the total dollar volume for luxury homes in Vancouver. In the graph below, the total dollars spent on Vancouver homes above $2 million has dropped 5%, while total dollars spent on homes above $3 million dropped 12%. Total dollar volume spent on Vancouver’s luxury homes started to ramp up in January, 2015 and peaked in March, 2016. Since then it’s been a steep decline down, likely exacerbated by the 15% foreign buyers tax. Although in recent months total dollar volume has shown some resurgence. To be continued… Get a weekly Roundup of Market

Steve Saretsky -

Vancouver Condo Prices Continue to Rise in May The Vancouver condo market shows little sign of slowing down. This is something I also mentioned in last months report (Vancouver Condo Report April 2017). The sales/actives ratios has set all time records for certain areas of Vancouver, amidst strong sales and collapsing inventory. As always, let’s break down the sales, listings, and prices below. Vancouver Condo Sales Vancouver condo sales fell by 8% year over year, but remained 22% above the 10 year average for the month of May. First time buyers and local investors are aggressively competing in multiple offers. New Listings/ Inventory Levels Vancouver condo new listings dropped 1% year over year and sat 16% below the 10 year average. Although new listing numbers could be worse, they have not been able to keep up with the ferocious demand. The even bigger story is what a combination of below average new listings and a surge of sales has done to overall inventory levels. The imbalance between the two has created the lowest inventory levels on record. Vancouver condo inventory dropped 22% year over year. Vancouver Condo Prices Condo prices continued to rise in May. I’ve included the average price

Steve Saretsky -

Strong Sales Keep Upwards Pressure On Prices For further context you can check out last month’s report here. The condo and townhouse market continued it’s torrid pace in May. Prices continue to rise amidst strong sales and historically low inventory levels. Demand remains red hot, mostly from first time buyers, as i’ve been preaching for quite some time, which was recently highlighted by Better Dwelling here. Let’s breakdown the numbers below. Condo Sales REBGV condo sales fell 5% year over year in May. However, they were still a whopping 41% above the 10 year average, as highlighted below. Condo New Listings/ Inventory REBGV new listings climbed 1% year over year. This is encouraging as new listings had been trending well below that in recent months. However, new listings are still 4% below the 10 year average and inventory levels are at rock bottom levels. Inventory dropped 31% year over year as new listings were simply not able to keep up with the demand. Condo Sales/Actives Ratio The sales/actives ratio which is a key indicator of demand levels in relation to active listings shows how strong the house lust is. REBGV condo sale/actives ratio hit 93% in May, a new record for

Steve Saretsky -

Sales & New Listings Begin to Normalize In May The detached market has had a noticeable rebound in recent months. This was something I discussed last month in the Vancouver Real Estate Detached Market Report April 2017. In May, that trend continued. Sales returned to normal levels and new listings also inched closer to healthy levels. The market sentiment appears to be that things have stabilized and this is the new norm. Agree or disagree, let’s break down the numbers. Detached Sales REBGV detached sales fell 17% year over year. A noticeable decline, but not even close to the panic inducing 50% drops we were experiencing just a few months ago. Of course, this is also around the time the market began it’s downturn last year. All areas experienced a decline year over year, and an uptick month over month. Due to seasonal fluctuations you’ll likely see detached sales begin to drop in the coming months. New Listings & Inventory New listings have recovered after undergoing a strange purge over the last few months. Call it a late start to the spring selling season, but it appears new listings have reached healthy levels again. REBGV detached new listings were still

Steve Saretsky -

Foreign Investors Now Targeting Surrey Pre Sales It wouldn’t be a typical day in Vancouver real estate without another debate over supply. The latest numbers out from UDI (Urban Development Institute) highlights new construction is far outpacing population growth. Metro Vancouver’s net population change was down 11% from the same quarter last year and down 26% from the five year average. Further, The current ratio of 1.3 new residents per housing start is well below the five year average of 2.1 new residents per housing start. This should come as little surprise to those who have been reading this blog. There’s plenty of evidence to suggest we have been overbuilding the last few years. Including an Avalanche of New Supply Under Construction, the most on record. Despite the record building, prices continue to soar as our promised new supply hits the open market in Hong Kong. Offshore investors desperate to park cash into global real estate are snatching up Vancouver pre sale condos at a torrid pace. The tax exempt pre sales are even being snatched up in Surrey. The latest Includes Concord Pacific’s Park Boulevard development. A crippling blow to the city of Surrey, griped with house lust, where prices have

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The Canadian Economy

Steve Saretsky -

Warren Buffett’s Berkshire Hathaway Makes Big Investment Into Troubled Home Capital Group As reported earlier today from our friends over at Better Dwelling, Warren Buffett made a lucrative deal to purchase nearly 39% of Home Capital Group shares. This would make Buffett’s Berkshire Hathaway the largest shareholder of the firm....

Steve Saretsky -

Residential Mortgage Loans Continue To Spur Home Prices Canadian banks continue to funnel money into the historic real estate boom. In the first quarter of 2017, Canadian bank loans to the real estate and construction sector hit a record at C$43.6 billion. This of course is ensuring real estate prices stay...

Steve Saretsky -

Early June Stats Highlight Potential Trends In the Vancouver Real Estate Market As always, this is the mid month REBGV real estate stats. This should give us a rough idea of how the final June numbers shape up. New listings have been trending up in recent months, which is partly...

Steve Saretsky -

Mortgage Payments Rising, Canadians Tapping Into Equity As Debt Grows The average mortgage payment for new loans in Vancouver rose by 4.5% year over year in the fourth quarter of 2016 to $1936 per month. Canada Mortgage and Housing Corp. says the fact that the average scheduled monthly payment is growing...

Steve Saretsky -

Why Canadian House Prices Have Surged Since 2007 Canadians love to argue over house prices. The debate rages on over what actually caused prices to take off over the last decade. An impressive boom that has seen cities like Vancouver and Toronto explode by more than 50% in recent years....

Steve Saretsky -

Vancouver Condo Prices Surging to New Highs In 2017 It looks like another leg up for the Vancouver condo market. Last week I mentioned condo sales were 22% above the 10 year average in May. Couple this with the fact inventory is down 18% year over year and it’s a...

Steve Saretsky -

Home Equity Lines of Credit Grow Nearly 40% Since 2011 The Bank of Canada released an update on their Financial system review earlier today. The message was much of the same from Governor Stephen Poloz “Price increases in Vancouver and Toronto have an element of speculation to them. The longer that...

Steve Saretsky -

Total Dollar Volume Spent on Vancouver Luxury Homes Falls Capital flows pouring out of China have been well documented. It’s been estimated over 1.2 trillion dollars has flowed out of China since August 2015. Meanwhile, National Bank has estimated 12 billion dollars was invested from China directly into Vancouver real...

Steve Saretsky -

Vancouver Condo Prices Continue to Rise in May The Vancouver condo market shows little sign of slowing down. This is something I also mentioned in last months report (Vancouver Condo Report April 2017). The sales/actives ratios has set all time records for certain areas of Vancouver, amidst strong sales and...

Steve Saretsky -

Strong Sales Keep Upwards Pressure On Prices For further context you can check out last month’s report here. The condo and townhouse market continued it’s torrid pace in May. Prices continue to rise amidst strong sales and historically low inventory levels. Demand remains red hot, mostly from first time buyers,...

Steve Saretsky -

Sales & New Listings Begin to Normalize In May The detached market has had a noticeable rebound in recent months. This was something I discussed last month in the Vancouver Real Estate Detached Market Report April 2017. In May, that trend continued. Sales returned to normal levels and new listings...

Steve Saretsky -

Foreign Investors Now Targeting Surrey Pre Sales It wouldn’t be a typical day in Vancouver real estate without another debate over supply. The latest numbers out from UDI (Urban Development Institute) highlights new construction is far outpacing population growth. Metro Vancouver’s net population change was down 11% from the same quarter...

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The Saretsky Report. December 2022